Acquisition of a hotel in Karuizawa, Nagano – Negative
Haidilao (6862.HK) – Acquisition of a hotel in Karuizawa, Nagano – Negative
- Haidilao (6862.HK) to purchase a hotel in Karuizawa, Nagano (JAPAN HAI) for JPY2.6bn from Super Hi (9658.HK), a sister Company
- JAPAN HAI operates a hotel and hot spring business in Japan. Haidilao intends to develop a hybrid hot spring resort by 2027 to ride on Japan’s tourism recovery.
- Concerns arise as the acquisition does not align with Haidilao’s core business, raising questions about corporate governance. Our previous “BUY” rating is under review.
Haidilao (6862.HK) has entered into a share transfer agreement to purchase JAPAN HAI, a hotel in Karuizawa, Nagano for JPY2.6bn (US$17.4m) from Super Hi (9658.HK), a sister company. Based on the appraised value of JAPAN HAI’s net assets, the acquisition is valued at approximately 0.96x P/B. The transaction will be fully funded by cash, where Haidilao stood at net cash position of c. Rmb4.9bn as of Jun’23. The Company reported revenues of US$0.55m in FY21 and US$0.60m in FY22, with net losses of US$0.82m and US$0.63m in those years respectively. We anticipate that the net earnings impact will be minimal over our projected period. Further details regarding the hotel’s construction have not yet been provided by the Company.
JAPAN HAI currently operates a hotel business in Japan and possesses a license for developing a hot spring business in the country. Haidilao intends to establish a hybrid hot spring resort, with completion slated for 2027. The Group is optimistic that the hotel business will thrive due to the resurgence of tourism in Japan. However, we view this transaction negatively as it does not align with Haidilao’s core business operations, casting a shadow over the company’s corporate governance as well as potential change in business focus. Furthermore, Super Hi (9658.HK), which primarily represents the overseas facet of the Haidilao hotpot brand, continues to operate 10 restaurants in Japan. This seems to counteract the Group’s stated intention of separating domestic and international operations. Our previous rating was BUY, but it is now under review pending more information regarding the Company’s plans.